Oil and rupee crucial metrics for India in next 2 qtrs: Jinesh Gopani, Axis MF

Good NBFCs will emerge as winners if they are able to manage their ALM mismatches well and can grow without sacrificing growth significantly, Jinesh Gopani, Head - Equity, Axis Mutual Fund, tells ET Now.

Edited excerpts:

Are markets factoring in all the macro bad news? Are crude price at $80 plus and 75 on the rupee priced in?

Yes, the correct metric to look at is oil and rupee. It is very critical for India’s macroeconomic balances and these are the two critical metrics for over the next three to six months. If oil corrects from here, then we are in a very good shape. But if oil goes to $90, then we are up for further pain. So, these are the two metrics. The rest all are manageable and the volatility seen over the last one-two months is because of these two metrics. If either of them stabilise, we will have a clear picture of where the markets are heading.


As of now, it is difficult to gauge the impact. It is also difficult to predict how these things will behave, whether they will reverse or continue to deteriorate. Better, wait for a few months and you will get a clear picture of how the markets will stabilise.

In understanding the direction that the markets will take from here, earnings will hold the key. What do you think the trend is going to be this earning season?

It is too early to say. Very few companies have come out with numbers but those numbers have been good. The September and the December quarters are very critical because after a base of GST and demonetisation, everything is in the base. You will see how this companies are delivering real growth rather than giving excuses on good numbers or bad numbers because of demonetisation or GST.

Obviously there will be impact on some of the stories because of the Kerala floods and because Onam being one of the big festive season, many of the consumption companies would have lost some sales. There would be some hiccups here and there. Also, the festive season has been postponed to the December quarter and so both taken into account, we should see good numbers. However, September and December quarters are very important for our earnings trajectory to go up.

The biggest dilemma is in IT. At least for the foreseeable future, there is currency tailwind for the IT pack. But if all the good is already priced in, do you trim your positions in IT?

I guess, it again comes to the oil and currency factors. You can see reversal in oil prices and in currency. Obviously, IT as a pack for some time becomes an underperformer. As you rightly said, for a double digit 10--11% growth, you are already paying multiples of 20-24 PE depending on the companies.
It is better to be watchful in terms of how these two factors behave because once your domestic piece comes back into action, the technology and the pharma space will continue to underperform.

I am not going into stock specifics because there are some companies which would continue to do well but net-net, from a sector perspective, if oil and currency reverses, then domestic space is the place to play and the reverse is the case if they deteriorate.

Could the entire NBFC theme get into both time and price wise correction?

It all depends on how the liquidity issues get sorted out, especially what happened in the last 15-20 days. After the IL&FS episode, there was a significant amount of liquidity crunch and suddenly there were no buyers for the papers in the market for the NBFCs. Those issues are getting sorted out, especially the way RBI and government are providing liquidity into the system. It is better to wait for one or two months and let the liquidity issue settle down.

At the end of the day, you will have good companies in any sector which are able to survive the space will become larger and larger over a period of time and not so good companies, which will find it difficult and will have to reshape their business model which will take its own time. It will either impact their growth or profitability or the entire business model.

I would like to wait for one or two months and let the liquidity issue get sorted out. The NBFC guys told me that during demonetisation, the issue was of asset quality and markets did not take it that negatively and everything came back pretty fast.

This time it is the issue of liquidity and not the issue of asset quality and the markets are hammering down the stocks left, right and centre. The good guys will emerge as a winner if they are able to manage their ALM mismatches well and are able to grow without sacrificing growth significantly.

The not-so-good NBFCs, let us say tier-2, tier-3, tier-4 NBFCs, will have to change their business model. It is too early to say that this episode was like a small black swan event which took everyone by surprise in the financial world and the good part is that catastrophe has been avoided and things hopefully should come back to normal in a month or two.